Why Are Low Interest Rates So Important for Crypto? ๐ง๐
In the world of crypto, interest rates might seem far removed, but they actually play a huge role in shaping the market.
When central banks lower interest rates, borrowing becomes cheaper. That means:
โก๏ธ More liquidity in the economy
โก๏ธ Investors take on more risk
โก๏ธ Capital flows into higher-yielding assets like crypto
๐น Low rates = cheaper money
With traditional savings and bonds offering weak returns, many investors start exploring alternatives. Crypto, with its high growth potential, becomes an attractive option.
๐น DeFi thrives in low-rate environments
When traditional lending yields are low, DeFi protocols offering 5%, 10%, or more look very appealing. This drives TVL (total value locked) and boosts innovation in the space.
๐น Bull markets love liquidity
The 2020 - 2021 bull run wasnโt just about hype, it was fueled by near-zero interest rates and stimulus. That surge in liquidity helped push Bitcoin and altcoins to new highs.
โ ๏ธ But the opposite is also true:
High interest rates tighten liquidity, cool investor appetite and often lead to risk-off behavior, pulling money out of volatile assets like crypto.
๐ Thatโs exactly why everyone watches Jerome Powell so closely, every word he says about rates can move the entire crypto market. ๐ง ๐
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